Key metrics: (4Aug 4pm HK -> 11Aug 4pm HK)
BTC/USD +5.9% ($114,800 -> $121,600), ETH/USD +20.6% ($3,550 -> $4,280)
A solid break higher through the flag top over the weekend appears to be setting the market up for a re-test of ATHs. We continue to be bullish here and expect the market to eventually extend to a target high of $125–135k (with a slight extension risk to $140k). We think this will mark the cycle high for this move
If we stall here and retrace lower then we could enter into a prolonged extension of wave 4; but we expect strong support at $112k to hold for now. Once the progresion high is established we expect to see a pick up in realised volatility that could extend over the coming 3–6 month period
Market Themes
After the market was caught wrong-footed on the US NFP print, last week marked a healthy reversal in risk assets as the reality of the Fed pricing began to set in. With corporate earnings broadly still good in the US, the backdrop is set up nicely for equities to continue their rally amidst a Fed rate-cutting cycle. The market will be focused on US CPI this week to cement pricing of the Fed cuts for a soft/in-line print and propel the next leg of the risk rally, particularly in high-beta AI names where recent results have been impressive
Crypto continued to exhibit beta to US equities/NASDAQ, rebounding in line with the rally in equities after BTC held key support at $112k. ETH eventually broke clear of huge resistance at $4k, jumping briefly above $4.3k over the weekend and holding around those levels, while BTC initially lagged but printing through $122k on Monday morning. Likely we will continue to see some rotation out of ETH back into BTC or SOL here given the impressive rally ETH has staged in the past month, and this should help underpin BTC in the absence of a turn in risk sentiment, especially should CPI this week give confirmation of the Fed cut pricing. We also had some crypto-specific positive news for the first time in a while, as the Trump admin begins to deliver on its promise of promoting the asset class, with Trump signing an executive order to enable crypto purchases in American 401K’s and nominating BTC advocate Miran for the Fed board
BTC$ ATM implied vols
Realised volatility sustained around the 30–32vol mark last week, after the market rejected the downside break and crypto positive news from the Trump admin propelled spot back above the pivot level around $116k. Despite this, implied volatility levels remained muted with participation low given the summer slumber. Brief excitement on Monday morning with spot rallying 4% to a high of $122.4k gave the vol market some life briefly, though once again without follow through and participation this was faded for now
The term structure has continued to steepen out, reaching levels where the rolldown on expiries in September and October are rather punitive to hold in this environment. The market is clearly expecting activity and realised to pick up as we come out of summer/end of August, though it is also pricing a hefty premium to hold that in the coming weeks. August expiries remain depressed given the muted realised but at low 30s with several events in play (US CPI, Jackson Hole) these are proving monetisable
BTC$ Skew/Convexity
Skew prices moved aggressively for puts in short dated expiries on Monday week, despite spot actually breaking higher. This is suggestive of some liquidation unwinds of short calls that were deep ITM, which is also consistent with the move higher in convexity. In Sep expiries onwards, skew began to push for calls again as the market saw some demand for topside structurally once more
Convexity prices moved aggressively higher on Monday, inexplicably so given the muted move in ATM vol and the performance of local smile gamma. This is suggestive of a liquidation move and present a nice opportunity to generate efficient gamma off these low vol bases and high flies, especially given the recent choppy local moves and with key US data ahead. For context, the ratio of BF/ATM is roughly 0.2 in end-Aug expiry, vs a historic average of closer to 0.1, so almost doubling the expected variance in the wings relative to ATM
Good luck for the week ahead!
